Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Fredrik Voss: Nasdaq – How Blockchain Technologies Will Transform Capital Markets

Episode Date: October 4, 2017

Nasdaq is one of the largest and most well known financial institutions in the World. As the second-largest stock market by market capitalization, Nasdaq is also one of the leading software companies in capital markets, providing its Nasdaq Financial Framework to exchanges all around the globe. Fredrik Voss, VP of Blockchain Innovation at Nasdaq, joins us to discuss how Nasdaq is leveraging blockchain technologies to propel itself into the future. Having invested in Chain and Stratumn, Nasdaq is taking a very hands-on approach, building products which it integrates into the various software solutions they sell. Topics covered in this episode: A high-level overview of Nasdaq as a stock exchange and software company Nasdaq’s thesis regarding blockchain technologies The potential challenges ahead What blockchain technologies bring to regulators regarding oversight and auditing Nasdaq’s Venture Program and its investment thesis Why Nasdaq chose to invest in Chain and Stratumn Types of applications built in partnership with Chain and Stratumn Fredrick’s views on Initial Coin Offerings (ICOs) Episode links: Why Nasdaq Is Even More Optimistic About Blockchain Than It Was 3 Years Ago Inside Linq, Nasdaq's Private Markets Blockchain Project Nasdaq Executive Fredrik Voss Optimistic About Blockchain in Capital Markets Fredrik Voss, Nasdaq Vice President – About Blockchain This episode is hosted by Meher Roy and Sébastien Couture. Show notes and listening options: epicenter.tv/203

This is Epicenter, Episode 203 with guest, Frederick Voss. Hi, welcome to Epicenter. The show which talks about the technologies, projects, and startups driving decentralization and the global blockchain revolution. My name is Sebassiang Krujou. And I'm Meherroa. Today we are talking to Frederick Vos, who is the vice president of blockchain innovation at NASDAQ. Now, we'll talk about how NASDAQ is approaching the blockchain space.

What Frederick in particular thinks about the applicability of blockchain technology to capital markets. and other topics. Frederick, welcome to the show. Thank you very much, guys. It's a pleasure to be here. So before we begin, tell us about your background and how you got to be interested in this technology. Yeah, so I actually joined the Capital Market Space in 1995, and most of that time I've been working in commodity derivatives, involved in the business management and operations of commodity derivatives exchanges and clearing houses for commodity derivatives.

I did that up until about two years ago when I got a question from NASDAQ if I wanted to be part of our blockchain innovation initiative, which is at that point in time was two years old, but it was more a pure engineering initiative then, and we expanded it out to involve also more business people, and that's how I got sort of involved with this space. And so how does a company like NASDAQ go from looking at this, as sort of an engineering space, right, where mostly engineers are involved in it, to deciding that they should hire a VP of blockchain? I think the way to answer that question is to put it into a wider context in terms of how

this fits into NASDAQ overall. I mean, most people in, at least in North America, would associate NASDAQ with being the stock exchange for publicly listed companies. But we think of ourselves as an engineering company in capital market and actually beyond in some cases. And one of our business lines is actually to provide software solutions to other exchanges, clearinghouses, CSDs, brokers, banks, market surveyors, organizations around the world. So I think overall, something like 100 exchanges around the world run on NASDAQ software and technology. So any new technology or pre-existing technology that people believe can play a role in capital markets get sort of the same treatment within NASDA.

We investigate the technology, we analyze it from an engineering perspective, but also for a business perspective to see if it can sort of enhance the way capital markets are working. Can it bring increased efficiencies, increased productivity? Can it enable new market structures, new kinds of business models? So we have about a dozen similar work tracks, so innovation tracks going on. In addition to the blockchain program, so we work with machine intelligence, capital markets leveraging cloud technology, internet of things, mobile, virtual reality, augmented reality, etc., etc. So that's how it sort of fits into the greater picture for us. NASDAQ is exploring like all of these different technologies.

applicability to capital markets and like in your answer you mentioned that you sort of judge these new technologies on whether they can bring increased efficiency increased productivity or sort of new business models so tell us what are the measures of efficiency and productivity that that you think can be enhanced in the capital markets today where could the big gains come from yeah So I think that also depends upon where you are in the sort of transaction chain. I mean, we've seen, over the last 20 years, we have seen an incredible innovation and evolution of the price discovery part of capital markets, so the exchange part, the trading of securities.

I mean, we've gone from floors where it took to execute a transaction to actually chasing nanoseconds. and co-locating algorithmic and high-frequency trading application with the actual central exchange matching algorithm. And we have mobile access for retake clients in a way we didn't have before, of course. It's been a huge innovation over the last 20 years in the price discovery part. Where we have seen less innovation has been in the post-trade plumbing. Once a trade is done, the actual settlement of that transaction and the pay. for the shares and the delivery of the shares, to just take that example, has not seen the same kind of innovation.

I think that is where this technology potentially fits in. It sort of brings a promise that we can create faster, cheaper processing, less need for reconciliation, less need for capital to cover extended periods of time between the execution of a transaction and the settlement of the transaction. But it also brings a promise of perhaps providing great. transparency for regulators and society as a whole into what is going on in capital markets. I mean, this, of course, remains to be proven on a large scale, but those are the promises of the technology, and we see that the use cases that it used for in capital markets aims to address at least some of those points.

But it will be some time until we know for sure if that actually is the case. But it looks pretty promising, we think. Regarding this idea that sort of back office systems have not evolved, this is something that we see across capital markets, whether it be the financial sector, insurance. But there has been a lot of innovation on sort of the front end, whether it be front office systems within banking organizations or capital marketist organizations, and also in terms of innovation towards clients and user experience and new services and things like that. Why do you think there hasn't been as much innovation on the back end? Why do you think that those systems have stagnated so much? Well, first of all, you have to admit that they actually work pretty well. I mean, these systems and processes and procedures actually function well. You have a very small amount of erroneous trades and it sort of fails in that process.

it handles, you know, and fantastic amounts of value in those systems. So they work pretty well. But actually, it is also because there hasn't really been, you haven't really had access to new technologies that potentially have had sort of enabled that innovation. So on the front end, we've had, you know, increasing processing capacity. We have co-location. We have mobile, et cetera, et cetera.

But here we've sort of been sort of leveraging the same technology that's been around for the last 20 years. So the technology itself hasn't perhaps sort of enabled the same kind of structural innovation that we've seen being able in the front end side of things. And as a VP of blockchain, tell us what does your normal day look like? What are your roles and responsibilities in that day? Yeah, so, I mean, it is a lot about still doing things like this, you know, media panels evangelizing to some extent, both externally but also internally within the company. I, of course, contribute to our decisions in terms of what should be the objectives of this initiative at any point in time that evolves quite quickly, also proposing strategies for how to achieve those objectives because of my background. in the capital markets that do get involved in the identification and selection of use cases, POCs, products, pilots, etc. NASDAQ has a investment fund for that we do innovation investments

and where there are sort of blockchain opportunities in that space, we get involved in that as well, and also helps to coordinate resources across the organization. I mean, NASDAQ is not phenomenally large, but it is 5,000 people dispersed across the globe and, many of our initiatives are sort of decentralized, and we have many groups in the company in various parts of the world that are working on blockchain-related initiatives, and I try to help coordinate to make sure we don't do the same thing twice, or that we pick up, lose balls, and get someone to run with them. So I think that is the typical day for me. Okay, so let's let's then perhaps talk about NASDAQ.

So I think most of our listeners will have heard about NASDAQ. It is not only sort of an emblematic part of New York's skyline, I guess, or being there in Times Square and also is the second largest stock exchange in the world. But you mentioned earlier that NASDAQ was an engineering company that builds software in the financial markets in financial services space. Maybe expand on that and tell us things that perhaps people don't know about NASDAQ or don't realize about NASDAQ. Yeah, so, as I said, a very significant part of our business is actually providing technology

to capital market infrastructure service providers around the world, exchanges, CCPs, CSDs, etc. We also do provide services to corporate investor relations solutions, corporate governance solutions, etc., etc. And we've sort of done this for more than 10 years. We, of course, you can say that we use what we sell and we sell what we use because we are also a user of this technology. NASDAQ in its own name, operate a quite large number of exchanges. in North America, which of course known as the NASDAQ exchange on Times Square. But actually, almost all of the Nordic countries and the Baltic countries are exchanges and clearing operations that are actually run by NASDAQ with a NASDAQ brand.

And this gives us, of course, a unique position in creating valuable technology in that we use the technology ourselves. So all the knowledge that we acquire from that operation, we can incorporate in our solutions. But we also get great feedback and great collaboration with our clients around the world. So we think that is a sort of pretty fruitful integration between those two business lines, if you want to call them that. So NASDAQ both builds like the technology for exchanges and clearing and also operates one of the larger exchanges in the US and the Nordic nations. Correct. So in North America, I think.

We run more than 10 exchanges with stock exchanges in the US and in Canada. We have a commodities exchange. We run fixed income markets. We have a large actually several derivatives markets that we run over here. And the same thing in Europe where we run the exchanges in Stockholm, Helsinki, Copenhagen, Reykjavik and the Baltic countries. We run some of the central depository companies there and we also have a pretty big derivatives clearinghouse in the in the Nordics that's correct so in terms of like blockchain technology what

what parts of this technology do you think are the most interesting for nasdaq like what capabilities from this technology could be the most impactful for your business so i mean so currently you can say that most of the the initiatives that we're working on or pilots or mvPs or or project they they are in one or three buckets. And some of these projects actually touch more than one of those buckets. So first of all, we are interested in how can this technology play a role in sort of the plumbing, of the post-rate plumbing, as we talked about a couple of minutes ago. So that's one area of great interest to us.

The other area is, you know, how can this technology help society actually? And, you know, society typically delegate this task to regulators. to get greater insight into what is actually going on in capital markets. Can we create greater transparency for regulators to see where systemic risks are forming, where concentration risks are forming? So that's the second area. The third area is, can this technology somehow enhance the relationship between the issuer of an asset, a company, for example, and the investor in that asset?

For example, in the US today in the public market, it's a quite long distance between the company, the issuing company and the investor in the company. If that communication has many intermediaries, could this technology allow where you have all the parties on a network, can this technology allow for a closer collaboration between companies and its investors? So typically most of the initiatives that we do now is in one of those three buckets. It doesn't mean that things beyond that is not of interest, but we have to start somewhere, and those are the ones that have been sort of closest to us to start with. One thing that strikes me is that a lot of the use cases that we see in blockchain

and we see them sort of applied in public blockchain, so for instance, like ICOs and trading assets and transfer of tokens representing value. You know, these things could potentially be quite disruptive to NASDAX business. How does NASDAQ look at this technology from that point of view where it can be at the same time quite disruptive and quite disruptive to your core business, but in meanwhile, also allow for your back office to be upgraded from its current state to something that's perhaps a bit more modern, where information flows much more fluidly, where the regulator has a lot more insight into what's happening.

I think there are two ways. I'd like to answer that question. The first one is, like, you know, you innovate or you die. I mean, if a new technology comes along, it has application to a market where you're evolved in. You have to embrace it. Otherwise, someone else will embrace it. and then you may be in trouble.

When it comes to disruption of businesses, I think one has to be a little bit more nuanced than the discussion typically is, and that is that there are so many components, there are so many parts of a capital market transaction chain. For example, the price discovery, the management of buy and sell orders and the actual matching of these orders,

where we now see millions of those, order transactions per second in today's listed market. It is difficult for us to see that this technology is so incredibly disrupted for that part. Where it is disruptive is, of course, or potentially disrupted, is of course where the core strengths of the new technology lies. And that is, of course, keeping track of possession of the digitized asset in a peer-to-peer network. So yes, if your business model is to do that particular job, if you, if you're the trusted third party that does that job, of course, this technology asks some

questions about that, or if you can speed up things with this technology and your current business model is dependent upon there being extended period of time between the transaction and the settlement of the transaction, then of course this technology potentially asks questions of that model as well. So yes, for example, if you're a security depository, You know, there are certain parts of your activities that could be potentially challenged by this technology, but it's not like all capital markets or participants of all capital market intermediaries or all capital market activities are in the sort of haircross of this technology. So one has to be a bit nuanced when I talk about disruption in capital markets, where is it really applicable and where is it not? And of course, that piece about, I mean, if something new comes along, either you innovate, leveraging that new innovation or, you know, you risk that someone else does it for you.

So, like, in terms of, like, your interests in the intersection of blockchains and capital markets, you mentioned three of them, which is one is on the post-trade process side. So after a trade is done, the settlement and the, in the tracking of the. of the various assets. Second is blockchain technology some way enabling greater transparency to regulators on what is going on in the market. And then the third is blockchain technology might help in improving the relationship

between issuers and investors in, like the communication between issue and investors in some way. So let us walk through all of these three and dig a little deeper in terms. to what all of it means. So in terms of post-trade process, could you give us an overview of how the post-trade process works today and at what points it might be, well,

it might, blockchains might prove an advantage in that process? Yeah, of course, I mean, of course, how they actually work depends from market to market and asset to asset. But you can say for listed asset, generically you have a trusted third party in the middle, and that is the party that keeps track of of who is doing what. Every single transaction that is done is copied a gazillion number of times. All the parties in the ecosystem have their own copy of, you know, have their own version of the truth,

and there's a lot of resources spent on reconciliation of that status at the end of the day. Now, if we could now have an agreed view of the status of the ecosystem, of course, there are a lot of those activities that would be cheaper or not, would not have to be done in the same way as today. And, you know, an example to prove that point was a pilot that we run in the private company share space in the US. And of course, what the project that we call the link project, where we made an application that leveraging sort of the chain blockchain technology

that allowed a, for example, when the board in a private company makes a decision to issue shares, the CFO can get out to his or hers office and actually print those shares in sort of blockchain transaction, issue those shares to its investors immediately. And when there were secondary market trades in those shares, investors could transfer those shares between each other independently of a third party. Now, ultimately what that is, that is an alternative market structure that is enabled by the technology. So that is an example of what we mean by that.

And of course, the relevance of this depends, is dependent upon which market you're in, the current structure of that market, and the needs and desires of the participants in. in each particular market. I think that is the short way to describe it, in our opinion. So are there any markets in particular where you foresee that this application of blockchain technology will flourish first and then it will go on to the other markets? So are there like some signals

or are there some characteristics of particular markets which make it easier for this technology to penetrate that space and not other kinds of markets? Well, as I said a couple of minutes ago, most of these sort of the post-trade infrastructure, though all actually works relatively well today. It is not like we have masses of complaints on it. But this, of course, this technology potentially enables alternative structures to that.

we don't necessarily think that that is where it's going to start. Actually, change a market structure from a trusted third party to a peer-to-peer is a very significant undertaking. And the bigger the price is, the more significant it is, in terms of number of participants, in terms of complexity of existing technical ecosystem, in terms of the number of decision makers involved to get a change to happen. So we think that the initial commercial applications of this technology in the post-trade plumbing piece will actually be to lift markets that currently operate on a peer-to-peer structure, but maybe using not the most efficient technologies around and actually apply this technology onto an already existing structure, but you do a technology enhancement. So the link pilot was an example of that. We're working actually with a client of us here in New York called NIACs, which is the New York International Advertising Exchange.

They have bought a solution for master leverage, this kind of technology for this kind of market structures in the advertising space. So I think that's where it's going to start. Now, if these early adoption cases proves that there is great value in these, then I think the traditional markets will be more inclined to invest in transitions to a new structure enabled by a new technology. But they want to see some evidence of the benefits before taking that leap, in our opinion. So another area of application that you mentioned is greater transparency to regulators. And this is obviously something that speaks to me, because I'm starting.

Stratom is building blockchain networks that allows for inter-enterprice processes to be more transparent and where integrity is guaranteed, authenticity of data is guaranteed. And of course, the regulator is part of this where the regulator can have, and to quote you in your great Forbes article, a special set of goggles to peer into a process. Can you give us your point of view on this and how blockchain technology, can be beneficial to an organization like NASDAQ from this point of view? Yeah, and again, it goes back to this fact that this technology could potentially enable an alternative way of doing things,

that traditional technology could not. So it goes back to that relationship between the technology and the chosen market structure. And it sort of distorts with the market structure, really, and the technology is just an enabling technology in a way. But today, in many markets, the structure is of course built on sort of before you get to the ultimate beneficiary or the ultimate owner of an asset, you have a great number of intermediaries in between that and the marketplace. You have brokers, you have transfer agents, you have registries, you have depositories.

So actually to find out who is holding a position is quite hard. And it requires a hell of a lot of reporting of who holds this position. Yeah, but that position was held on behalf of someone else who was holding it on behalf of someone else and down the chain goes and actually trying to reassemble who are the beneficiaries or who holds the position is quite hard. Now, if you actually had these participants on a network with sort of addresses attached to them, you could of course potentially, you could imagine at least that that sort of the accumulation of the identification of what the does the market actually looks like? Who is long, who is short? Which participants may not necessarily be named, but where in the ecosystem do we have these potential concentrations?

That could be simplified by a network-based technology like this rather than these sort of fragmented silos that we have in many markets today. But not all markets are the same. There are actually markets where you have greater insight into the who is owning what, for example. And a lot of that is actually not technology related. That is because those are the rules in a particular market.

So it's a combination on what the technology can enable and the particular rules and structures of a particular market. You mentioned ecosystems. This is, I think, something that maybe we should spend a bit of time on because I was just at an event today and talking to insurers. and I think that one of the things that corporates in the capital market space really need to wrap their head around is this idea of ecosystems. And that the future is one of network economies, is one of ecosystems where we break down these silos, where we sort of work very differently from how we did in the past, right, where organizations are independent and have their own siloed data. Can you talk about ecosystems from the point of view of NASDAQ and,

what those ecosystems could look like, you know, if we were to apply them to, you know, your business lines. That is a pretty long and difficult question to answer. But if we take again, we go sort of go back to exchanges and clearing houses. These are already, you know, ecosystems today. You have, you have, for example, the exchange. The exchange has members. The members trade on behalf of clients. You have transfer agents.

You have registries. involved in keeping track of who is owning what and so on. And that this sort of infrastructure is today a mishmash of technology from various sources that are that sort of integrates with various APIs and so on. And it may not be the most efficient way of organizing things or setting things up. But they are ecosystems where the sort of the benefit of one party in this ecosystem, depends upon another party doing its job properly. Now, the question is, can you sort of leverage new technology

to enhance the working of those ecosystems? Does that mean that certain roles and activities that some parties do in this ecosystem change? Yeah, maybe, but I think it's a difficult question to answer. And it remains to be seen in a way. Of course, in the public, in the public blockchain space, we see that the way sort of you organize, how those are organized, and that ecosystem, how those ecosystems sort of look. And you can say that, of course, they look significantly different

from traditional capital market ecosystems and how they look and how they are organized. So, you know, I think it's going to be. going to be interesting to see how that sort of evolves in the future. So one of the major challenges, I think, in implementing these technologies, at least in the enterprise space. And coming from the point of view of a company that's building consortium networks, not necessarily deploying on public blockchains, is building these consortiums where they don't exist or where they do exist, where there are already ecosystems.

One of the, I think the major challenge is figuring out the governance and getting everybody on the same page to adopt a specific technology or a specific stack to implement in a consortium network. Can you give maybe your perspective on this and how NASDAQ is approaching this challenge? Yeah, totally. I totally agree with you on that. one of the, that's one of the key challenges to adoption of this technology in capital markets. And while many participants subscribe to the vision of the benefits of the technology to actually be in a position to get anything implemented, you of course have to agree on the exact details or the blueprint and how do we want this to actually work. Okay, we can have T plus zero settlement, but maybe that's not the way we want it or governance.

need to agree on governance to your point, how do we want the governance to look like for this particular initiative of this particular market? But I think that is only one of the challenges to adoption of the technology on a wide-scale in capital markets. You also have the issue around legal and regulatory, not necessarily compliance, but in order to pave the way for some of these very innovative business models that could be enabled by this. technology, you would also have to have some legal and regulatory innovation in parallel with that because some of these models are so innovative that the problem is not that they are prohibited by existing laws and regulation. The problem is that they are not contemplated.

So there is sort of a legal vacuum in which to deploy these models and no one is going to allocate billions worth of assets to a structure where the sort of legal certainty of what does this particular transaction on the blockchain actually mean in the eyes of a court, for example. So that is also an area. And then, of course, we have the usual boring sort of coming out with a new technology. It is not deployed in a completely new world. It's deployed in an existing world. So there also need to be a lot of integration, technical integration and technical transition from all technology to new technology. And of course, that is not a showstopper. That happens all the time, but has an impact on the timeline. And all of these things, together with the sort of the core

evolution of blockchain technology, has to happen in parallel and sort of be agreed by everybody. So it's a pretty chunky initiative to see those changes being deployed on a large scale. And that is one of the reasons why we think, actually, as I said before, initial commercial opportunities is going to happen in markets where those challenges are a little bit less than in the larger markets, for example. And they'll get sort of a trial in those markets and in those structures. So the way we deal with it is that we work with our clients, we work with our members, we work with our technology partners. We work with our clients on the technology side, like I mentioned NIACs. We also working with the Swiss Exchange.

We have a couple of other initiatives that are not yet publicized. And that's sort of how we try to not start with a giant consortium, but to start with a core group of dedicated people and sort of expand the group of participants from there. But it is not saying that the alternative approaches can work as well, but this is sort of how we have addressed the situation, at least now initially. So another item that you mentioned in use cases

is blockchain technology somehow improving the communication and relationship between the issuing body and the issuing body and the investors in the asset. Tell us why blockchains make a difference here. I mean, some of that is also going back to that. Some of this is not about the technology. It's about how market is organized in the structure of the market and the number of intermediaries and so on.

But if you today, if you are a publicly listed company in the U.S. today, and you want to send something to your shareholder or for voting purposes, for example, or you just want to send them a coffee coupon or a coupon for ice cream, whatever, something real simple. It's quite complex to do that, and a lot of intermediaries involved to make sure that the intent, what you want to do is actually carried out in accordance with your intent. Now, of course, if you're on a network-based technology like a distributed ledger network, that is super easy. You can just send a digitized asset through an address on the network, and it's done. So one of the use cases that we pilots that we ran to try to demonstrate this was a remote voting application that we built and we deployed a pilot in Estonia in Europe.

And what that showed was that for proxy voting purposes, we could leverage the technology to get a company to actually digitize the votes, send the votes to its investors. The investors could then do whatever they wanted with those votes. They could vote with them. They could send them to someone else on the network to vote in their behalf. And we could sort of increase the speed and the efficiency and the cost at which, that happened compared to sort of how it works today. So I think that is an example of what we meant by bringing parties closest to each other. I'd like to come back to this question of regulatory oversight.

And again, I'm this, I use this all the time, the special goggles for the regulator. I just love that. And so does Richard. So that was a great quote, by the way. And so in terms of regulatory oversight, at Stratham, anyway, we, we, we, we, we, we sort of see the regulator as a super client. So we obviously work with corporates and we work with large companies in insurance and financial space and capital markets. But we kind of see the regulator as the, you know, the super client in terms of oversight and sort of getting industries on board with regards to a certain set of technologies and building consortiums and building

ecosystems. What is your opinion on this approach and perhaps give some insights as to how regulators are perceived and what role they play in the U.S. market and in the European markets and how that might be different? Well, I'm not an expert on the various regulatory entities across the world, but I think the role of the regulators change significantly. after the financial crisis of 2008. That is really when they got interested in sort of understanding more in real time, sort of getting clever from that experience. They increased their demand and need and understood that they had a need

to have greater insight into how are the risks forming in real time. And that has created some challenges for the capital market community, because before then, sort of technology and market structure wasn't really rigged to support that situation. So what you have now in response to Dodd-Frank, the regulation in the US, and it's called Emir and MIFID 1 and soon MIFID 2 in Europe, is that there is a heck of a lot of reporting going on instead. So now these are, you know, gazillions bites of data trying to, to portray who is owning what is sent up the chain or market participants to regulators.

And then they get this sort of data, see of data, and they sort of try to make sense of that and try to distill insight into where do we have risk and issues forming in the markets and where are potentially some sort of shenanigans going on. Now, to your point, if you could actually give regulators access to real-time access to what sort of what is actually going on in the market and who is doing what and who is in possession of what, that need and that requirement that is, you know, only 10 years old, so could perhaps be better satisfied. But of course, then you then you have to then you also have to agree across the participant in the market that this is the way. we want to organize the market. This is the technology we want to use, and that takes us back to one of the challenges to adoption.

So I think that is how we see the regulatory dynamics in terms of this technology. The technology holds great promise, but it will be a while before we will see it sort of implemented to its full ability to satisfy those kinds of needs. Now, do you think that in the long term, this is something that is desirable? I mean, if we come down to, I guess, the perspective of consumers and sort of users of financial services. And on the other end, we have the regulator in the middle we have, you know, companies, service providers, financial market participants, etc.

You know, the companies in the middle are sort of in between the regulator that is pushing them to give them more information and to provide more reporting and provide more insights into their business. And on the other side, satisfying the needs of customers and the customers want more privacy and want more protection of their data, etc. Where do you think the cursor lies there for a good balance between regulatory oversight and protecting the data and the interests of regular citizens? I mean, ultimately, those are political decisions, actually. what should the balance be between regulators, market participants, and consumers. I think it was fair to say that, you know, the lessons, you know, we're not super happy with what happened after the financial crisis in 2008, and that sort of moved the needle quite significantly in terms of politicians' view on what that balance should look like. But once you've actually agreed on a set of rules, and currently we have Dodd-Frank,

in the U.S. and potentially that will be eased up a little if the new administration gets what they want. But fundamentally, once you have a rule set, a set of rules, then I think there's a common interest across the participants in the market and regulators and investors and consumers to actually satisfy that need as cheaply and as efficiently as possible. And of course, this is where tech comes in. That is where innovation comes in. Can we leverage new technology to satisfy those requirements better? But the actual decision on how much should a regulator know and for what purpose and how do we prevent privacy and so on, that is actually ultimately a political decision. So NASDAG, so your company has been like sort of an active investor in some of the young

blockchain startups. So tell us about your activities. in this space, what start-up, what kind of startups are you pursuing and what the company has done on the investment from? Yeah, so part of our innovation program across NASDAQ, we do have a sort of VC-like fund. We do sort of strategic investments in startups and also in slightly bigger companies when that makes sense. And in the blockchain space, we've, of course done two investments, one in chain and one in Stratom. And of course, we are looking for situations. where we have unique teams with unique capabilities, with unique technology, and also technology

that we can integrate with our technology to create both value for us and for the company that we invested in, and also to leverage our resources around the world in terms of our sales resources, in terms of our business development resources, resources in terms of our strategic resources, legal and regulatory capabilities to sort of bring additional value to the companies we invest in. So we are looking for great teams, great people, and people that are interested in learning, actually, because to adopt an idea to the specific

needs of capital markets is, you know, like all other markets, has some unique desires, so a willingness to adopt. And of course, in the course, in the country, core, there has to be some kind of exciting technology as well. And that is actually true for both chain and stratum, if we talk about specifically about our blockchain investment so far. So just touching on the on chain, and so we've already talked about the post trade plumbing and we've sort of touched on Link. And I think most of our listeners will be somewhat familiar with the link platform. So can you talk about sort of the long-term vision for that product from the perspective of NASDAQ and how it fits in with the greater picture of the NASDAQ financial

framework. Yep. So, Link is an application that is a part of the NASDAQ financial framework, as you said. That framework is a generic framework that can be used across all kinds of asset classes, commodities, fixed income, stocks, publicly listed stock, private stocks, et cetera, basically any asset you can imagine. And then we have sort of market-specific applications and link was for the private company space. So that is now an integrated part of the NFF offering.

We're going to leverage that technology now when we do the implement the contract we signed with the Swiss Exchange, which is about structured products in the OTC space in the Swiss market. the actual pilot we were running on the West Coast. We sort of altered that a little bit, and we're sort of analyzing the results of that. But the technology, we continue to enhance and develop, and it's actually a standard part of our offering now to anyone around the world.

Okay, so this is actually in production this time. The technology is available. Components of it are in production, we're going to enhance it and evolve it and expand on it for the various projects that we implement around the world. So you can say it is in production. The specific pilot we were running on the West Coast in the US, we paused that for the time beat. I see. And are you able to talk about sort of more specifics like trading volumes, like number of users?

How many people are using this platform day to day? I mean, the NASTAC financial framework is not specific to that. generic framework that anybody across large and small clients around the world can use. So it's difficult to talk about that. If you look at it from that perspective, we are contemplating thousands of users around the world. The specific pilot on the West Coast where private company share was just a handful of companies that we were working with and was pretty confined to that. So the idea behind the link platform, as I understand it, is before a company goes public,

they can sort of issue their shares on blockchain. I'm assuming based on chains technology, and then people can trade these shares before the IPO. Yeah, which is nothing new. I mean, that is not something that was enabled by blockchain technology. That's the way the private company's market has been operating for a very long. time but this was a this was a way of proving the value of the technology in in sort of that you know space so can we expect to see other like projects come out from NASDAQ based on let's say stratum's technology or change technology yeah so we have two ways to market for for those innovations

one is when we do it as part of our transaction business as we talked about before we run exchanges and CCP and cEDs, particularly in North America and in Europe. We are, we have the, we have sort of three publicly announced initiative. We have the link pilot. We have the payment solution that we did together with the city here in the US. We had the voting pilot in Estonia. We have a couple of other initiatives that we're working on that are yet to be publicized. So that's one channel. The other channel is of course the work are doing with our clients on the market technology side. We talked about NIACs before, where we leveraged this technology for advertising forward contract

purposes here in New York. And we just talked about the Swiss initiative as well. We also are working on a couple of design studies with the potential clients for other purposes, but those are who those clients are and exactly what that is about is not publicly. been actually announced yet. So of course, like in the blockchain space, there's like blockchain platforms which build like financial ledgers, distribute financial ledgers. And then there are other startups like stratum that build like proof of process technology.

So if there's any particular process happening inside an enterprise, recording each step of the process and making the conclusions from that process accessible to other entities. enterprises. So does your group have any interest in like this kind of proof of process technology or like certification or time stamping technology and to use in capital markets? I mean, obviously there are the number of workflows in capital markets that could benefit from that kind of capabilities is almost infinite. And with regulatory, demands for actually proving that your workflows and processes are secure, you know, that is obviously an area of interest to a company like NASDAQ and to ourselves and the clients

of our solutions. And of course, the unique capabilities of stratum technologies is something that was attractive to us in making decisions to do an investment and to do a sort of strategic partnership with strata in that space. And yeah, we're very happy and excited to have NASDAQ as an investor and as a partner and we've, and are looking forward to being able to announce some things, some being able to announce some joint software partner in the context of our partnership, you know, soon. So before we wrap up here, we couldn't have you on without talking.

talking at least for a few minutes about ICOs. And so I'd like to ask you, you know, as from coming from the perspective of a NASDAQ, what are your thoughts on ICOs? And how do you see this, this new wave of capital coming into the blockchain space? You know, of course, we, we know the existence of these crypto assets, you know, the, the ether and the bitcoins and the,

and the ICOs, those tokens, as well. I mean, currently our focus rests in the space of the sort of the technical innovation of distributed ledger technology and its applicability to capital markets on a board scale. As I said, we know the existing of these ICOs and that it retracted a lot of capital and interest. And yeah, we just see what's going on without having a sort of strong opinion of whether that is a good or a bad thing. We just see what's going on for the time being.

It's impressive to see the growth in the space. So I think like from the ICU markets perspective, there seems to be like two interesting pieces to it. A, many of the ICOs are actually like secure. is for good or bad. So we're seeing like start-ups essentially issue like securities on the on the public blockchain and the second part of it is there is this new technology which is the technology of decentralized exchange where where not only can these securities be issued on the public blockchain

but they can be exchanged peer-to-peer without creating any kind of counterparty risks. So me buying securities from you over the blockchain without me needing to trust you in any way. So kind of like these protocols are in operation. And have you sort of been following this technology? And do you think like this kind of technology can can like create an alternative to the current way exchange works in capital markets? I mean, I think it's an interesting.

proof point in terms of the sort of the functioning of the technology in capital markets, that it actually proves that that peer-to-peer processing of digitized assets actually, you know, works. I think we subscribe to the vision and that it would be fantastic that if you had a, like an internet of value and a sort of a rails that is global and borderless and that would be greatly sort of beneficiary to mankind actually to have that now at the same time you do have to marry that with existing laws and regulations which is critical and it's also important to make sure that investors and consumers have sort of ample protection in those markets, but also that the companies have suitable protection for them to be viable in the long term.

So, I mean, it's an exciting space to follow right now. We've sort of seen, of course, a fantastic sort of boom. in the use of that technology and that structure. But it's also going to be interesting to see as time goes by and we sort of see investors or buyers of these tokens, sort of also expecting delivery of what they think they've bought. And that's going to be also interesting to see how that works out over time. Do you think that a regulated exchange as a NASDAQ

could one day get into trading cryptocurrency tokens? digital assets? Well, if there is a need and desire for that kind of certainty and, you know, fair, northerly markets and consumer and investor and participant protection that a regulate exchange can bring, you know, if NASDAQ is not doing it, you know, I guess someone else will do it. But ultimately, there needs to be that need in that community for that to be. a sort of viable proposition to a market or to a community. And I'm not sure we're there yet, but we'll see.

All right. Great. Well, Fredick, it was great to have you on the show today. It was fascinating to hear your thoughts and your perspective is coming from the point of view of NASDAQ on how blockchain technologies are developing and will develop in the coming years in the capital market space. So once again, thanks for coming on the show today. Awesome. My pleasure.

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